Electricity prices lack validity
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The National Audit Office of Lithuania analysed the reasons for increase in electricity prices. In 2004-2007 price of electricity for home users increased around 16 per cent, and for commercial users – around 26 per cent. Prices were mostly influenced by increase in distribution prices. The Auditor General Ms Rasa Budbergytë pointed out that increase in price caps of electricity transmission and distribution was substantially influenced by the Law on Amendment of the Law on Electricity passed in 2004, wherein profit rate is related to value of property. Distribution network enterprises revalued their property twice in the latter four years, therefore its value increased about four times. |
It allowed to enlarge the value of normative profit about five times.
Auditors also noted that methodology for setting prices of electricity transmission and distribution services and price caps for the services does not clearly name that calculation of the price caps includes only interest rates on the loans, which are taken for carrying out the licensed activities. The methodology does not foresee the actions of the National Control Commission for Prices and Energy in case if a company receives an excess profit not due to cost-cutting or efficiency of the respective activities, but due to property revaluation.
In the opinion of the auditors, the National Control Commission for Prices and Energy setting price caps for electricity transmission and distribution services for the period 2005-2007 followed only final figures indicating the property value provided by companies. Therefore without validation of the soundness of figures the risk persists that price caps set for electricity transmission and distribution services may be unfair.
The National Audit Office of Lithuania gave recommendations helping to solve the identified issues.
Full report is available in Lithuanian:
Validity of increase in electricity prices